After reading the Hudson Bay Capital report preceding the Mar-a-Lago Accord, I was rather struck by how confused its directives were… at least from a macro-economic perspective. The basic policy is to compensate for tariff costs at the consumer point of purchase by depreciating the purchasing power of foreign territories. This is a completely self-negating strategy if this is an economic policy.
If the intent is to reshore American industry, normalizing domestic consumer prices completely negates the capital formation effects of tariffs. Tariffs primarily alter the consumption incentive structure domestically. By restricting the flow of import, the perceived value proposition of national production grows.
For example:
Before Tariff:
US good = $5
Does not acquire market share in US territories
Chinese good = $4
Acquires market share in US territories
After a 50% tariff on Chinese goods:
US good = $5
Acquires market share in US territories
Chinese good = $6
Does not acquire market share in US territories
The consumer landscape changes such that an American good—that would ordinarily be outcompeted by a Chinese import—can find a foothold in the domestic market given an import tax. However, the game plan under the Trump administration is to erase this effect at the very same moment that it is put to paper. The policy doesn’t do anything if there are no pricing effects felt by the domestic consumer. Ultimately, Trump is doing what every American president has done since Nixon: selling out trading partners to skimp on national economy.
However, as a political read, confused policy is actually perfect policy. The populace doesn’t really know what’s going on. I truly doubt that Trump’s base has a good idea of what coherent tariff policy looks like, how painful it would be to undergo, and what kinds of things it would be mutually exclusive with. Voters are simpler than that. They don’t like losing purchasing power and they respond to shibboleths. After that, all bets are off.
Not to the surprise of anyone, Trump’s political crowd-work is more reliable than his political theory. It actually does make a sick sort of sense, it’s just about what feature is being optimized: electoral optics. Here’s the basic paradox it needs to solve:
How do you sell a polity on the efficacy of your platform when the only measurable effect in your term would be a >70% drawdown in the global economy?
Answer: You can’t.
The populace will not track the efficacy of Trump’s policy in the relevant terms. Short-term market fluctuations are not a relevant gauge for decades-long capital formation processes. Spot prices for commodities and consumer baskets have nothing to do with the time horizons of nationalist policy. Conventional preferences on what trends you would want to observe are pretty much antithetical to what you would want to happen in a reshoring context. Yet, you can’t really expect the voting body to react to the policy they want with anything but the standard ways and means.
It doesn’t really matter how tariffs would be expected to feel because they will feel so intolerable to the people who wanted them in the first place. People are already check to check, meaning that shrinking their purchasing power means shrinking their plates. No one votes to be existentially poorer. Does the populace have the grit and awareness to not complain about this? Does Trump have the power and discipline to weather that inevitable storm? Is the Trump platform—in voter composition, talent, optics, and political savvy—capable of durable policy that honors its stated aims?
On all counts… probably not.
The personality-splitting of the Trump platform reflects the fracturing of the core lie of the United States: the dollar. It is non-negotiable to the survival of the United States that its constituency of citizens and trading partners must agree experience exponential decay in purchasing power through the dollar. Everyone needs to be on it for forever, and it always grows to be a shittier, more extractive arrangement. It’s an intractable problem, and one that is growing quite terminal. And why would you agree to that in any other context than deceit or duress?
You wouldn’t.
Trump has to appease his voters with deceit, quell dissenters with a different, mutually-exclusive deceit, and hold trading partners under duress by force—all while losing power on all fronts. If you lose the capitulation of any party, your whole game falls apart. It’s an impossible task, and always has been. The natural, emergent strategy would be to steal under increasingly complicated fraud, while speaking out of either side of your lips to confuse and disorient observers. Hence, Mar-a-Lago Accord.
It’s an indirect restatement of my basic thesis for the past 5 years. The US dollar has been the global political consensus for the past half-century, and was formed on political lines—not economic ones. While both essential for the function of global trade and detrimental to the sound accounting of it, it will be held roughly up until the world breaks. Because accounting becomes worse and worse, so too will its essential function be degraded. In order to maintain the concessions people will make to this irrational system, the lies will have to complexify to support the increasingly bizarre stories that the numbers tell. Observers will grow to find more and more dissonance with the fiction. With its actors growing in discontent, confusion and disillusion, the system will lose its capacity to animate the world by narrative until—like a house of cards—the world comes tumbling down.